The demat account is a repository where we hold shares. It is exactly like a bank
account, the only difference being that instead of cash you holds shares and other
securities in your demat account. You can open a Demat account with an authorized
DP, who could be your broker or a bank. Eventually, all the shares will be held
in custody by one of the depository viz. NSDL or CDSL.

The world of Zero Demat account opening charges:

If you open any newspaper or website today you will find ads announcing zero account
opening charges for demat accounts. Most banks will offer you free demat account
opening. The reasons are quite simple. If you have a demat account, you will also
have a bank account with the same bank. That means your trading account float will
lie with the bank and that more than compensates them and allows them to waive the
accounting opening charges. Nowadays most brokers are also offering zero cost account
opening or charging very nominally. However, discount brokers do charge you a small
fee for the account opening and in some cases also charge you separately for executing
the Power of Attorney (POA) for your Demat Account.

But, account opening charges is not the only demat cost:

Remember, waiving off the account opening charges does not mean that your demat
account becomes free. There are other charges that will continue to apply. There
are two types of demat accounts. There are Basic Service Accounts where the Annual
Maintenance Charges (AMC) will not apply till a custody value of Rs.50,000. This
is meant for very small investors. Then there are Full Service Accounts where there
will be an AMC levied on an annual basis. This fee ranges from as low as Rs.300/-
per year to as high as Rs.800 per year. Some banks and brokers even waive the first
year AMC but charge the AMC from the second year onwards. The GST at the rate of
18% will be applicable on these AMC charges. When you are opening a demat account
with a bank beware of the hidden charges. For example, banks like Axis charge you
a sharply higher AMC if your demat account is not mapped to Axis Bank account. Normally,
AMC charges are lower for more transactions and the charges are higher when there
are lesser transactions.

Other variable charges entailed:

Demat costs are not just about the AMC. There is a custodian fee that is charged
by some DPs at the rate of Rs.0.50 to Rs.1.00 per ISIN per month. However, since
most companies pay this fee directly to the depository, most DPs do not charge this
to the customer. The most important cost is the transaction fee which is charged
by your DP each time a security is debited or credited to your demat account. Nowadays,
DPs are not charging for credit to the demat account but they do charge you each
time a share gets debited to the demat account. These are debited on a monthly basis.
Then there are miscellaneous charges. Any failed instruction or rejected instruction
is charged for by the DP. Most DPs will insist you use the online DP facility. In
case you want physical statements mailed to you, it is charged separately. There
are also charges for demat and remat of shares. The moral of the story is that Demat
charges are not about account opening charges alone. There are a host of other charges
for which you need to read the fine print.

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